REASON AND IMPACT OF INCREASE IN CHINESE YUAN VALUE OF CHINA

Topics: International trade, Foreign exchange market, Bretton Woods system Pages: 13 (4483 words) Published: May 26, 2014

INTERNATIONAL EXPERIENCE AND PRACTICE
REASON AND IMPACT OF INCREASE IN CHINESE YUAN VALUE OF CHINA

NGUYEN XUAN HONG
Banking Academy

After much pressure on Chinese Yuan (CNY), China made decision on increase in their currency in 6/2010. How will this increase impact on relevant objects? This article aims to find reason and impacte of increase CNY value of Chine on Chinese economy and other countries, including Vietnam be carefull on exchange rate policy to avoid impact on export. According to economic researcher , adjustment on CNY value may cause instability in Chinese economy due to encouraging investment, increasing independence of economy on external factor, especially when 50% of export comes from foreign-invested enterprises in current. This is contradiction that shall be considered when selecting exchange rate. 1. CNY exchage rate development before and after increase

Value from 2005 to the date before 21/06/2010: CNY value increased due to application of margin transaction measure, holding CNY to USD rate at CNY=6.83 from 8/2007

Besides achievement of economic growth, which partly thanks to current exchange rate policy, China also has to deal with many challenges. Since 1998, China has spent 200 billion USD to refinance and buy doubtful debts of banks. China is dealing with instable finance but Chinese Government still

However, BOC also eliminates availability of suddent adjustment in large scope. On 22/06/2010, BOC increased 0.3% of exchange rate between CNYand USD to 1 USD = 6.7980CNY, which has been the first adjustment since 07/2005. On 25/06/2010, USD/CNY rate reached the peak of 5 years, when BOC fixed offical daily exchange rate of 6.7896 CNY under commitment on flexibilizing exchange rate before G-20 Summit in the end of this month. This rate increases 0.3% incomparison with rate of 6.8100 on 24/06. CNY may fluctuate +/- 0.5 incomparison with daily fixed rate. In current, CNY is adjusted daily, flactuating around this rate. USD/CNY exchange rate since 22/06/2010 is shown in Figure 2. 2. Reason of rasing CNY value

Objective reason – pressure of affected economies
It is hard to refuse outstading development of China for 10 years ago. Especially in 2009, gross export value was 1,200 billion USD, higher than one of 1,120 billion USD of Germany, make China become the leading exporter in the world. Export share of China in the world increased 10% when this one of 1999 was 3%. Despite of global financial crisis, decrease in export of China is the lowest one in comparision with other power. Due to both internal and external impacts, on 21/07/2005, the Chinese Government announced to increase CNY value to 1 USD for 8.11 CNY, the previous rate was 8.3 CNY. Exchange regime was also changed from fixed exchange rate to floating exchange rate with regulation. Due to this decision, CNY exchange rate decreased continuously from 8.11 to 7.8 in the end of 2006, 7.4 in the end of 2007 and 7.0 in the end of 6/2010, which means that it increases 21% in comparison with USD from 2005 to 6/2008 (Figure 1). In 7/2008, China announced to hold CNY to USD rate of 6.83 to protect domestic economy Against global financial crisis in defiance of criticism from financial partners, especially US. China consisted to hold this rate from this date to 06/2010. Since 22/06/2010

Increase CNY value and enhance flexibility for exchange rate policy On 19/06/2010, the Bank of China (BOC) announced to promote reform on CNY exchange rate policy to enhance flexibility for this currency’s exchange rate. BOC continues to focus on relationship between supply and demand of market, supervise floating exchange rate of interbank exchange market in announced scope.

Countries. Deficit caused by trading with China of most of developed economy not only becomes more and more critical but also impacts on many social benefit groups, national “reputation”, leading that many Governments, especially US and EU, shall...
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